Glenn Chamandy says under his leadership company would borrow more, accelerate stock buybacks and eschew large acquisitions

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Gildan Activewear Inc.’s former chief executive said he has a strategy to nearly double the clothing maker’s profits by 2028 if he returns to the job and that investors will be better off with him than selling the company to the highest bidder.

Glenn Chamandy, who was fired in December after a bitter fight with board members over succession, said the Canadian company under his leadership would borrow more, accelerate stock buybacks and eschew large acquisitions. The goal is to quickly boost earnings per share and raise the stock price to US$60 by the end of next year and more than US$100 in about five years. It closed last week at US$37.13.

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First, though, Chamandy’s allies would have to win their battle to unseat Gildan’s current board. Los Angeles-based investment firm Browning West LP, which owns five per cent of the company, is leading the campaign to install new directors and bring the former CEO back. Investors holding about a third of Gildan’s shares have publicly said they want him reinstated.

That would appear to give Browning West and Chamandy a strong chance of prevailing at a shareholder vote scheduled for May 28. But board members are fighting back and have put the company in play, hiring investment banks including Goldman Sachs Group Inc. to reach out to potential buyers after receiving an unsolicited expression of interest from an unnamed firm.

At stake in the boardroom struggle is a business that’s a powerhouse in the world of cheap casual apparel. Gildan is one of the world’s largest makers of blank T-shirts, produces items for Walmart Inc. and Nike Inc., and owns the American Apparel brand. Since it went public in the late 1990s, it’s grown from a tiny player to one with a market capitalization of about US$6.3 billion, making it one of the biggest Canadian manufacturers of consumer goods.

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gildan valuation

Members of the Chamandy family have been in charge for decades, until the company shocked the market on Dec. 11 by announcing that Glenn Chamandy was making an immediate exit. The shares tumbled more than 10 per cent that day.

“I’m not entrenched, but I’m here to create value and a good succession because this is not just a company, this is my legacy,” Chamandy said. “My grandfather started the company in 1946. I’m quite passionate about it and I want to make sure that when I do leave, it’s in good hands.”

The board ousted the 62-year-old, saying he had become a disengaged CEO who refused to stick to an agreed-upon succession plan and wanted to embark on a risky acquisition strategy.

By putting forward a strategy that doesn’t rely on M&A, Chamandy and Browning West aim to quell any concerns and win shareholders’ support. The investment firm has put forward a slate of proposed directors that includes United Rentals Inc. chair Michael Kneeland as well as current and former executives of Nike, Walmart and Canadian National Railway Co.

“The operating plan is built 100 per cent on organic growth,” Chamandy said.

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It envisages net sales rising to US$4.3 billion by 2028, a 34 per cent increase from last year, with better margins, resulting in adjusted operating profit of US$956 million by that year.

“There’s nothing here that I think is unrealistic,” he said. “The board is trying to sell the company because they really don’t want to take accountability.”

“If the company gets sold and they put on some ridiculous amount of debt, how is it going to be able to reinvest?” he added. “The company will lose its competitive advantage, and over time, I think it would just fizzle out, really.”

Simon Beauchemin, a spokesperson for Gildan, said Chamandy’s statements are “a tactic designed to impede the strategic process and front-run a compelling and realistic plan” to be presented soon by new chief executive Vince Tyra.

Gildan’s share price has only briefly been above US$42, and none of the plans Chamandy presented to the board last year implied a stock price anywhere near US$100, he added.

“At best, this is an attempt to confuse the market on value,” he said in an emailed statement. “At worst, it is an intentional misrepresentation.”

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Bangladesh production

Gildan, which employs 43,000 people worldwide, has become a dominant global player in printwear — T-shirts that can be customized by companies or organizations with their own logos or designs. It’s a business where low costs are crucial, and Gildan has spent heavily in recent years to expand facilities in Bangladesh.

Under Chamandy and Browning West’s proposed strategy, Gildan would move more production to the South Asian country and away from Honduras, where energy and labour costs are higher.

The company would also focus on trying to grow in higher-end segments of the market, such as fleece products and clothing with better-quality fabric that’s sold under brands such as American Apparel and Comfort Colors, Chamandy said.

He acknowledged that key elements of the plan are the same as when he was still running Gildan.

“The company really hasn’t changed,” he said.

But the proposal to add more debt, partly to fund share buybacks, is new. The company would operate with a debt level that’s as much as 2.5 times its earnings before interest, taxes, depreciation and amortization, versus 1.5 times last year, according to a presentation seen by Bloomberg.

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In a conference call with analysts in February, Tyra, a former Fruit of the Loom Inc. executive, said he was focused on “tweaks and enhancement” to the company’s existing strategy and organic growth.

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Browning West, however, asserts that Chamandy is a stronger CEO than Tyra to execute any strategy.

Chamandy also said he wanted to set the record straight on his relationship with Tyra, who told the Globe and Mail that the two men are, or at least were, friends.

“I haven’t seen him in about 25 years,” he said, referring to a period where Gildan was doing business with a distribution company that Tyra was leading. “I really have no contact with him whatsoever, just to put that on the record, because they seem to be really saying that I’m best friends with the guy, which I’m not.”

Bloomberg.com

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